MONSANTO COMPANY

About MONSANTO COMPANY

Monsanto is something of a growth stalk in helping farmers grow corn and other crops. The company applies its biotechnology and genomics know-how to develop seeds and herbicides to help farmers produce corn (43% of revenue), cotton, oilseeds, and vegetables. It produces genetically altered seeds that tolerate Roundup (its flagship product and the world's #1 herbicide) and resist bugs. The company also produces Asgrow, DEKALB, Deltapine, and Seminis seeds. About 60% of sales are in the US. Monsanto agreed to be bought by Bayer in a landmark $66 billion deal reached in September 2016.

Operations

Monsanto organizes its business into two segments: Seeds and Genomics, and Agricultural Productivity. Today, its seeds and genomics unit (74% of sales) is the company's growth engine. The firm's agricultural productivity unit, which serves both farmers and the residential market, makes herbicides under the Roundup, Harness, and other brands for lawn and garden use.

Geographic Reach

St. Louis, Missouri-based Monsanto rings up 59% of its sales in the US. Europe-Africa, followed by Brazil, account for about 11% each. Argentina contributes about 6% of sales.

Sales and Marketing

Monsanto supports a worldwide distribution and sales and marketing organization for its two business segments. It sells its agricultural productivity products (aka herbicides) through distributors, independent retailers and dealers, and agricultural cooperatives. In some places outside the US, the company sells directly to farmers.

In 2016 its four largest US distributors accounted for 20% of the company's sales. WinField Solutions, a distributor, accounted for 11% of total sales for Monsanto's Seeds and Genomics segment and 17% of the segment's US sales.

Monsanto has reduced its advertising costs in the past three years. It spent $64 million in 2016 (ended August), down from $74 million in 2015 and $90 million in 2014.

Financial Performance

After several years of steady increases, Monsanto's sales and profit have dropped the past two years.

Sales skidded 10% in 2016 (ended August), falling to $13.5 billion from $15 billion. The Agricultural Productivity segment's sales were off 10% in 2016 from 2015 on a lower average net selling price of Roundup and other glyphosate-based herbicides. Revenue also suffered from lower volume in South America and the US and price pressure from generic products. Revenue from Seeds and Genomics were off 2% in 2016 due to the impact of currency exchange rates in Central and South America.

Net income for 2016 tumbled 42% to $1.3 billion from $2.3 billion in 2015 on lower revenue and higher expenses. The primary reason was due to decreased revenue and increased selling, general and administrative expenses. Expenses rose because of a settlement in a court case involving polychlorinated biphenyls (PCNBs) and higher point-of-delivery expenses for soybeans in South America.

Strategy

Despite its success in the seed and biotech businesses (or more likely because of it), Monsanto is contending with the public's negative perception of genetically modified organisms (aka GMOs). The company has undertaken an aggressive international public relations campaign to promote genetically modified crops as beneficial rather than "Frankenfood."

With its 2013 acquisition of Climate Corp., Monsanto embraced Big Data as part of its agricultural recipe. Equipped with a mix of relevant information from Climate Corp. such as rain, soil content, crop genetics, and fertilizer inputs, farmers can better gauge when to do what with their crops to achieve better yields.

In 2016 Monsanto agreed to be acquired by German chemicals giant Bayer, which has increasingly focused on its crop science operations. The planned $66 billion takeover will be the largest all-cash transaction to date, and is part of an industry-wide trend towards consolidation.